Why so many face shifts in medical insurance

Updated 9:44 am, Monday, November 4, 2013

One of last week's big stories was the flood of cancellation notices being delivered to people who have individual health insurance policies.

Despite President Obama's oft-stated promise that you can keep your insurance if you like it, most people with individual policies will have to get a new one in 2014 because their existing one does not comply with the myriad requirements of the Affordable Care Act and therefore must be terminated. Companies that discontinue a policy must offer customers a new one that complies.

One exception: If a person had a policy before the act was signed in March 2010, and that plan has not changed, that person is considered grandfathered and can keep the existing policy as long as the company offers it.

Under the act, a person can keep a non-grandfathered, noncompliant plan until its renewal date in 2014, which means people in other states will be getting cancellation notices well into next year.

In California, however, most notices have already gone out. That's because Covered California, the state's health care marketplace, required companies selling policies on its exchange to terminate all non-grandfathered policies by Dec. 31. Most of the big insurers who are active in the individual market in California are part of the exchange.

Insurers who are not part of the exchange can replace California policies when they renew.

Insurers who cancel a policy must give customers 90 days' notice and offer them a new one.

Complaints about cancellations have been surfacing for a while, but reached a crescendo last week when Peter Lee, head of Covered California, disclosed that 800,000 to 900,000 Californians would face policy terminations this year. That was higher than previous estimates.

Other states are also reporting hundreds of thousands of cancellations, with more to come.

In Massachusetts and Oregon, all noncompliant, non-grandfathered policies must end no later than March 31, says Edwin Park, vice president for health policy with the National Center on Budget and Policy Priorities.

Some extensions

In some states, insurers are letting non-grandfathered customers extend the life of their noncompliant policies through early renewal. If a policy normally renews in February, a company might let the customer renew it again in November so that instead of expiring in February 2014, it will expire in November 2014. Some states have outlawed this loophole, Park says.

Some have belittled the cancellation impact because only 5 percent of the U.S. population has individual insurance. (About half have insurance at work, 29 percent have Medicare or Medicaid and 16 percent are uninsured, according to the Kaiser Family Foundation.)

Covered California estimates that 1.65 million people in the state have individual plans. Of these, about 700,000 can keep their existing plans because they are grandfathered and 800,000 to 900,000 are receiving nonrenewal notices.

Some big benefits

Many people with individual coverage will find that they are better off next year when they switch to a new plan.

Under the act, all policies - not just those sold on state-run exchanges - must offer certain essential benefits including maternity and newborn care; mental health and substance abuse services and prescription drug coverage. (California law has required policies to include maternity care since July 2011.)

Companies can no longer deny people or charge them more because of pre-existing conditions.

Nor can they place annual or lifetime caps on the benefits they pay out in a year. Individuals won't have to pay more than $6,350 a year in deductibles and copayments, although they could choose a policy with a lower cap on out-of-pocket costs.

Companies also must revamp the way they set plan premiums based on age and geography. For example, the premium for a 64-year-old must be three times the premium for a 21-year-old.

About a third of the people with individual insurance in California will qualify for a federal tax credit to reduce their premium, in some cases to almost zero.

But some people who earn too much to qualify for a subsidy will pay more for insurance, in some cases much more, especially if they are reasonably healthy and previously had a bare-bones policy that is no longer available.

"No (government) policy is going to produce everyone being a winner," Rocco says.